How Does Early Access to Super Affect Your Income Tax Brackets?

How Does Early Access to Super Affect Your Income Tax Brackets?

Accessing your super early can feel like fast relief — but it’s important to understand how it affects your income tax.
When you withdraw super before retirement age, the payment may be taxable, and this can influence your tax bracket for the year.

Here’s the simple breakdown.

🔹 1. Early Super Withdrawals Are Usually Taxable

If you withdraw super before reaching preservation age, most payments are treated as taxable income.

This means the amount you withdraw:

Is added to your other income

Can push you into a higher tax bracket

Can increase your overall tax payable

Early access is not tax-free unless it falls under very limited conditions.

🔹 2. How It Affects Your Tax Bracket

Early super payments are added on top of your salary, business income, rental income, etc.

Example:

If you earn $70,000 and withdraw $20,000 early:
Your taxable income becomes $90,000.
This can move you into the next tax bracket and increase the tax on your other income as well.

🔹 3. When Early Access Is Lower-Tax or Tax-Free

Tax outcomes depend on why the super is accessed.

Some scenarios:

Severe financial hardship → taxed as a taxable component

Compassionate grounds → also taxable

Permanent incapacity → may be partly tax-free

Terminal illness → usually tax-free

Each category has different tax treatment, so the reason for early access matters.

🔹 4. Tax on Early Withdrawal Components

Your super is made up of two parts:

Tax-free component

No tax is payable.

Taxable component

Tax can be up to:

22% (including Medicare levy) if you’re under preservation age, or

Lower rates once you reach preservation age

This taxable component is what increases your income and potentially your tax bracket.

⭐ Simple Summary

Early super withdrawals are usually taxable.

The amount you withdraw is added to your taxable income.

This may push you into a higher tax bracket.

Some withdrawal types are tax-free, but most are not.

Always check tax treatment before withdrawing super early.


#Superannuation #EarlyAccessToSuper #SuperWithdrawal #ATOTips #TaxAdvice #IncomeTax #TaxBracket #AustralianTax